Bullish oil outlook bodes well for some Asia firms

SarahTurner

SYDNEY (MarketWatch) — Despite recent volatility in oil prices, some analysts remain bullish on crude for the months ahead, which if correct, will help some but not all Asian energy shares.

Light, sweet crude traded on the New York Mercantile Exchange has risen by approximately 7% this year to its current level of $98.08. Brent crude futures have gained almost 13% to their current level of $110.69 a barrel.

Both contracts have climbed sharply this year, with worries about supply interruptions from unrest in the Middle East and a broadly weaker dollar helping to boost the investment case for oil

But the prospects for commodities have been less than clear recently, and oil prices dropped sharply in the early part of May as investors fretted about the path of global economic growth and demand trends.

Despite this, Goldman Sachs commodities analysts on Monday upped their Brent oil price year-end forecasts by around $20 a barrel for 2011 and 2012. The new outlook calls for Brent to trade around $120 a barrel in 2011, and $140 a barrel in 2012.

The “core logic” behind the Brent crude upgrade is that global economic growth will be sufficiently strong, even with recent softening, to tighten a supply-constrained market in the second half of 2011 and also in 2012, the strategists said.

However, given recent oil-price moves, the broker also downgraded the Asian oil-refinery sector to neutral on Tuesday, citing “moderation in oil demand triggered by high prices and refinery outages following the Japan earthquake.”

Among individual refiners, the broker now has a sell rating on Thai Oil PCL, and a neutral rating on India’s Reliance Industries Ltd. (500325) . But it rates Hindustan Petroleum Corp. Ltd. (500104) at conviction buy, and Korea-listed SK Innovation Co. Ltd. at buy.

“Our picks in the Asian refining sector are names that have moderate leverage to the middle-distillate-product cracks, have a diversified business model, or have regulated margins and hence offer some counter-cyclical defensive feature,” Goldman Sachs said.

Higher oil prices also formed part of the reason for a downgrade by Goldman Sachs strategists for Asian growth outside Japan in fiscal 2012. The analysts said Tuesday they are now looking for growth of 7.8% for the region, from a previous forecast of 8.2%.

They remained underweight on the Australian share market, partly due to their forecast for an upward move in oil prices.

“Our bullish oil call may fundamentally benefit some parts of the commodity complex, but we feel that the slower China growth may hurt overall earnings growth for the aggregate resources sector,” the broker said, writing about the Australian market.

Credit Suisse analysts were also bullish on oil, and said they can now see opportunities in the Australian oil-and-gas sector. The analysts lifted Santos Ltd. (STO)
STOSF, +13.06%
, Woodside Petroleum Ltd. (WPL) ,
WOPEF, +0.52%
, Eastern Star Gas Ltd (ESG) , and Tap Oil Ltd. (TAP), to outperform ratings on Tuesday.

“Our medium-term oil price thesis remains intact. Libyan oil remains shut-in. The restoration of oil supplies may be some months away, and in the meantime we have yet to see any serious dent in global oil demand,” they said.

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